Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,Lucas Papademos, Vice President of the ECB,Frankfurt am Main, 2 June 2005

Ladies and gentlemen, it is our pleasure to welcome you to this press conference. The Vice‑President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB, which was also attended by Commissioner Almunia.

Overall, on the basis of our regular economic and monetary analyses, we expect euro area underlying inflationary pressures to remain contained in the medium term. Accordingly, we have left the key ECB interest rates unchanged. The exceptionally low level of interest rates across the entire maturity spectrum continues to provide considerable support to economic growth in the euro area, which currently shows only moderate dynamics. At the same time, we will remain vigilant with regard to upside risks to price stability.

I shall now explain our assessment in more detail, turning first to the economic analysis. According to Eurostat’s flash estimate, real GDP grew by 0.5% quarter on quarter in the first quarter of 2005, compared with 0.2% in the previous quarter. However, figures for real GDP growth over the last two quarters partly reflect statistical effects related to working-day adjustments to the data. This has led to some understatement of growth dynamics in the last quarter of 2004 and to some overstatement in the first quarter of 2005. Most recent indicators for economic activity remain, on balance, on the downside

The moderation in economic activity observed since mid-2004 is partly related to the rise in oil prices. Looking ahead, there is scope for positive fundamental factors to again shape the outlook, assuming that the effects from adverse developments gradually diminish. Notably, global economic activity is expected to remain strong, despite some moderation from the record levels observed last year. This continues to support euro area exports and should have a potential positive impact also on investment. Investment is expected to benefit from robust earnings, improvements in business efficiency and the very favourable financing conditions. At the same time, consumption growth is expected to develop in line with real income growth.

This assessment is broadly consistent with the new Eurosystem staff projections, which will be published today. Euro area real GDP is projected to grow at rates of between 1.1% and 1.7% in 2005, and between 1.5% and 2.5% in 2006. Recent forecasts from international and private sector organisations give similar indications. In comparison with the March ECB staff projections, the ranges projected for real GDP growth in 2005 and 2006 have been adjusted slightly downwards.

All in all, our judgement remains that real economic growth will gradually improve over the period ahead. At the same time, recent data have heightened the uncertainties surrounding the short-term evolution of domestic demand, and persistently high oil prices and global imbalances may pose downside risks to the projections for economic growth.

Turning to price developments in the euro area, according to Eurostat’s flash estimate, annual HICP inflation was 2.0% in May, compared with 2.1% in April. Over the coming months, annual HICP inflation rates are expected to remain broadly around current levels. On the one hand, energy prices are exerting upward pressure on HICP inflation. On the other hand, underlying inflationary pressure has been rather contained and, on average, wage increases have remained moderate over recent quarters.

According to the Eurosystem staff projections, average annual HICP inflation is seen to lie between 1.8% and 2.2% in 2005, and between 0.9% and 2.1% in 2006. Compared with the ECB staff projections published in March 2005, the inflation projections for 2005 have been revised slightly upwards and for 2006 slightly downwards. In 2006, this largely reflects the expected statistical effect of a planned health care reform in one euro area country, the Netherlands, which is estimated to imply a one-off reduction of 0.2 percentage point in the euro area inflation rate for 2006. This effect should be excluded from the assessment of the medium-term outlook for price stability.

Taking into account the assumptions underlying the projections, upside risks to the inflation projections prevail. These risks relate notably to future oil price developments, indirect taxes and administered prices. Furthermore, ongoing vigilance is required in order to ensure that past price increases do not lead to second-round effects in wage and price-setting throughout the economy. In this respect, continued responsibility on the part of social partners is very important.

The monetary analysis provides further insight into the risks to price stability over the medium to longer term. Over the past few months, money and credit have continued to grow robustly in the euro area. These developments mainly reflect the stimulative effect of the low level of interest rates in the euro area. The monetary dynamics are driven by the strong growth of the most liquid components of broad money contained in the narrow aggregate M1. At the same time, the euro area private sector’s demand for MFI loans, in particular for house purchase, has remained strong.

The assessment of ample liquidity in the euro area is confirmed by all indicators. Also in the light of the increasingly liquid nature of monetary expansion, the accumulated stock of the broad monetary aggregate M3 may entail upside risks to price stability over the medium to longer term.

To sum up, the economic analysis suggests that underlying domestic inflationary pressures remain contained in the medium term. At the same time, it is necessary to underline the conditionality of this assessment and the related upside risks to price stability. Cross-checking with the monetary analysis supports the case for ongoing vigilance.

As regards fiscal policies, developments in the euro area remain of concern. While a few countries are succeeding in maintaining sound budgetary positions, in several countries it is essential that fiscal consolidation is given the highest priority in view of the budgetary situation. Moreover, the revised rules and procedures for the Stability and Growth Pact, expected to take effect soon, need to be implemented in a strict manner to ensure credibility and to promote a timely return to sound budgetary positions.

With respect to structural reforms, the so-called “Integrated Guidelines” for 2005-2008, covering both the new Broad Economic Policy Guidelines and the new Employment Guidelines, are soon to be adopted. These guidelines for economic and employment policies will, in turn, serve as the basis for action at the EU level and for Member States to draw up national reform programmes by the autumn of this year. The new governance structure of the Lisbon agenda should provide new impetus to structural reforms in Europe. These reforms are vital for Europe's ability to respond to the challenges arising from an ongoing deepening in the global division of labour, the fast process of technological change and the ageing of the population. A determined approach in addressing these challenges and successful communication that convinces the public of the benefits of the reforms hold the key to both improving the economic outlook in the short run and sustaining the prosperity of European citizens in the longer term.

We are now at your disposal for questions.

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Transcript of the questions asked and the answers given by Jean-Claude Trichet, President of the ECB, and Lucas Papademos, Vice-President of the ECB

Question: Mr Trichet, I have two questions. The first concerns the interest rate position of the ECB. Maybe sometimes we tend to hear the monetary grass growing, but last time at the press conference it sounded as if you were, for want of a better term, less hawkish. In recent weeks, however, the statements we heard from you and your colleagues sounded as if you wanted to nip the idea in the bud that there would be another rate cut somewhere in the making. Were you concerned that there was too much speculation about rate cuts mounting? And the second question concerns all this nonsense we have been hearing for the last couple of days about a possible retreat or dissolution of European Monetary Union. Were you really surprised by this discussion coming up all of a sudden and what is the ECB’s take on this?

Trichet: First of all, I would fully confirm that after having had a long and thorough discussion in the Governing Council, we were unanimous in thinking that our interest rates are at the appropriate level for ensuring price stability; for delivering price stability in line with our definition; for, I would say also, reassuring households and consolidating their confidence that their purchasing power will be protected; for continuing to anchor inflationary expectations at the present level, which is in line with our definition of price stability; and for creating conditions that are very favourable to growth and job creation. I repeat: on the basis of all the information that we have today and all the signals which are coming from conjunctural indicators, economic analysis and monetary analysis, we think that our present monetary policy stance is appropriate, the best to be faithful to our mandate and therefore the best to foster economic growth and job creation in Europe. And, of course, I have to mention on behalf of the Governing Council that we are fully conscious of our own mandate, of the situation, that is, the situation of a European institution which is a federal institution with the responsibility of a single currency. We will be solid, we will be steady, we will be resolute and we will do all we can to improve confidence in the present period of time.

Question: What about my second question? The question about the dissolution of European Monetary Union.

Trichet: I will only say that I do not comment on absurd questions. And if your question were to be whether or not there is a likelihood for California, Alaska or Florida to have their own currencies, I would do exactly the same. This is complete nonsense.

Question: But where does this come from all of a sudden?

Trichet: Well, ask those who are shaping such absurd ideas. I also have to refer to Hans Eichel and Axel Weber who said yesterday, if I am not mistaken, that this was totally absurd. It is totally absurd and I will not comment any more on that. Again, no more than if I were to be asked a question on California or Texas.

Question: Mr Trichet, you say that inflationary pressures are contained in the medium term in the euro zone and also that you expect only moderate dynamics in the euro zone economy. What then is standing in the way of an interest cut at the moment? Did you discuss an interest rate reduction at today’s meeting? And secondly, we have seen from the referenda this week – or at least they suggest – that public confidence in the EU institutions is deteriorating. Are you also concerned the public trust in the ECB might also be at risk at the moment?

Trichet: I will respond first to the second question. The confidence issue is a very important one. We are convinced of that. We are also convinced that, as a federal institution in Europe with very important responsibility for guarding the currency for 306 million citizens, we have part of the confidence of our fellow citizens in our own hands. It is absolutely crucial that they continue to have confidence in our capacity to ensure price stability and in the delivery of price stability. It is very important because, as you know, we still have some difference between real inflation and the inflation perceived by our fellow citizens. The message which is coming from the analysis we do on sentiment among our fellow citizens is that they are calling upon us very clearly to fully deliver price stability. That is something which comes out of surveys and analyses, including the analyses made by the European Commission. We also believe that improving confidence, particularly in the consumer constituency and in the household constituency in general, would be a very important means to foster growth and job creation. I will say here that our fellow citizens can trust us. We are here to give them price stability. They still have some doubt that we will really deliver price stability. We reassure them. The Governing Council of the ECB is telling them: yes, we will ensure price stability. You can trust us. If you have the intention to embark on an increase in consumption and you are still hesitating because you have some lack of confidence, you can do it – perhaps it is time to consume. At least, if it depends on us, we will do everything necessary to ensure price stability. We know that we have a responsibility as regards overall confidence among our fellow citizens and households. We also know what their message to us is.

As regards entrepreneurs and confidence among entrepreneurs, I would also say that because we are credible, all recent surveys we have done on inflation expectations are giving us 1.9% as regards most of the survey that we are doing, which is a very good anchoring of medium and long-term inflation expectations in line with our definition of price stability – less than, close to 2%. It is difficult to be closer to 2% than 1.9%. And the last figure I have in mind, for break-even inflation – extracted from indexed bonds – is 1.97%. Less than 2%, close to 2% – very close to 2%! The fact that we have solidly anchored inflation expectations, I would say thanks to our own monetary policy, permits a yield curve which is exceptionally favourable. That should help fostering confidence among investors in general and entrepreneurs in particular. I am telling them: perhaps it is time to invest. You have, in terms of financing, an exceptionally favourable environment. An environment which we believe is optimal under the present circumstances. And if we moved interest rates, either down or up, we believe that it could increase medium- and long-term market rates, not decrease them. And then it could have an impact which would be negative in comparison with the present monetary and financial environment, which again, as far the financial environment is concerned, is exceptionally favourable to growth and to job creation. As regards the first question that you asked, we had again a very thorough examination of the situation, and we were unanimous in concluding that the present rates were appropriate and optimal.

Question: But did you discuss a rate cut?

Trichet: We discussed the situation and we concluded unanimously that was appropriate.

Question: How worried are you by the “No” votes against the Constitution in the Netherlands and in France?

Trichet: As I said, we are one of the European institutions, and a European institution with a very important responsibility. We have the chance to live in a political democracy. Each and every one of the 25 members of the European Union is a democracy, has to be a democracy to be part of the European Union. And we have a democratic life at the level of Europe at a whole. I fully subscribe to what has been said by the President of the European Union, the President of the Commission and the President of the European Parliament on what was their appreciation after what has been observed in France and then in the Netherlands. Of course, I have also to mention that ten countries have ratified the Constitution. Therefore we have a large number of messages, of signals, that are communicated to us. I would say that: it reinforced our sentiment of responsibility. The sentiment that we have is that improving confidence is really of the essence. It is what we try to do in the present exceptional circumstances.

Question: Just an additional question on the two “No” referendums. The euro fell after that. I did not hear any comment about the euro before in the statement. Are you happy with that? Because it is like a rate cut, isn’t it? Or is it bad because the oil is going up and it can bring more inflation than you have counted on?

Trichet: It is not customary in this institution to comment on exchange rates on a day-to-day or week-to-week basis. So, I have no particular comment. I will not comment on this evolution. We are living in a system which everybody knows. And if and when I have something to say, I say it.

Question: Mr Trichet, could you help me by clarifying two points? The fact that when you were asked about whether an interest rate cut was discussed you said that the unanimous agreement was that current rates were appropriate. Does that mean that a rate cut is now possibly an option, at least in some minds of the Governing Council members? And, secondly, just on yields. Perhaps you could help me with what appears to be a confusing position. Should we take low yields as a sign of the ECB’s credibility, or should we take them as a worrying sign that perhaps markets are not pricing in risk appropriately, which is what the Financial Stability Review seemed to be suggesting this week?

Trichet: First of all, as regards the discussion we had. Again, we had a very thorough discussion, a unanimous discussion. We unanimously think that the present interest rates are appropriate. And that if we would move them, we would not augment our faithfulness to our mandate and would not improve the financial environment from the standpoint of growth and job creation. But we would worsen it. So, again, this is a very firm sentiment of the Governing Council itself. As regards the yield curve, of course, market interest rates depend on the global appreciation of risks and also on the global supply and demand of capital, which influences real interest rates. What we are very proud of is that – that depends on us - solidly anchor had been at our level and therefore authorises a lower level of market interest rates. You know that we have very low inflationary expectations even on a very long-term fifty-year basis, which represents something in terms of the long-term credibility of this institution and of the stability of the euro that we are issuing ourselves. We are proud of that. We consider that it is not only our mandate, and we will be faithful to our mandate, but it is also very good, again, for growth and job creation in Europe. And I draw your attention, because we are now seven years after the setting-up of the ECB. It is an important anniversary. Who would have thought that I would be able to tell you seven years later that for 306 million inhabitants, twelve countries, the sentiment of households, market participants, operators, savers, in Europe and in the rest of the world, is that we will have, as I said, in the medium- and long-term 1.9% inflation, or 1.97% inflation when we extract the break-even inflation from index bonds. Nobody would have believed. Because it was really something which appeared extraordinarily difficult to achieve. And I do not hesitate to say: in the eyes of most, a very wide majority of, observers, impossible to achieve. So we did that. And it is something which, I have to stress, is very important. It is very important also for the households of Europe. They are not telling us that we should not be vigilant on inflation. Ask them. And you will see. Look at the Survey. Look at all the information we have. They are calling upon us to be, again, faithful to our mandate. And to guarantee them that they can rely on their own purchasing power. Sometimes I am told, we are told with my colleagues in the Governing Council: “Look, perhaps you should be a little less demanding on price stability. Why not go up to 3%? You said close to 2/below 2%? Okay, why not close to 3/below 3%?” What would it mean exactly? In terms of our yield curve? In your opinion? It would mean immediately that all market interest rates will have to augment by 100 basis points at least. Because if we say that our definition of price stability is 3% instead of 2 – okay, let’s go up. 1.97% transformed into 2.97%. 100 basis points. And on top, this increase of 100 basis points we would probably have an additional risk premium. Because if we are able to say, brutally, 2 is now transformed into 3 – why not tomorrow 3.5 or 4%? So you have to have an insurance premium against the risk of seeing further increases in the definition of price stability. So I really draw your attention to this: by being credible and successful in anchoring inflationary expectations we are delivering an exceptionally favourable yield curve for growth and job creation. But, of course, it is a necessary condition for growth. It is not a sufficient condition per se. We fully agree with that. And it is our firm belief, as the belief of other responsible authorities, that we also need structural reforms.

Question: You have warned publicly, notably a few minutes ago, and many other times, that if you decrease rates the effect would be to increase long-term interest rates. However, over the last few months, as bond markets have pared back their expectations of you raising rates, in fact long-term rates have come down at large. What concrete evidence do you have then that, based on this year’s experience, by lowering rates you would somehow endanger price stability and long-term interest rates? And as a second question, as a follow-up to that, the bond markets are basically on the verge of pricing in the expectation of a rate cut later this year, standing on the edge of the abyss, so to speak. What does that mean for your credibility, that some market participants are on the verge of not believing your protestations of late that you were not considering a rate cut?

Trichet: First of all, I will say that market participants are market participants, which I fully respect. It is absolutely normal that they do not all have the same opinion. If they all had the same opinion, we would not have a functioning market. As regards examples of various central banks having had good experiences and bad experiences, I would suggest that you consult the academic literature, which is very abundant. When I compare our own bond rates to some others, I see that they are at a low level. And so they are incorporating inflationary expectations that are lower than others. I do not want to create a hit parade of the best inflationary expectations, but if you take bonds you know well and you extract the break-even and compare with ours, you can see what it means. We believe that by being very clear in the eyes of public opinion, households and market participants that we were vigilant, we have permitted precisely those inflationary expectations to remain firmly anchored. Vigilance is the normal posture of the central bank and considerably helps its medium and long-term success. We believe that we can prove that success in the economic and arithmetic studies that we carry out.

Question: Mr Trichet, I have two questions. First, on the political developments recently: are you, because of what you have seen, are you growing a little bit less hopeful about the amount of political will out there to implement structural reforms? And the other question I have is, again, when you look at the environment out there, the political uncertainty in France and Germany, the developments with the Constitution and the varying growth rates in some of Europe’s largest economies, to what extent does all of this create an environment which makes a more challenging environment for the European Central Bank to operate in?

Trichet: I would say that we are in a challenging environment permanently. We started this institution seven years ago and we started a new currency six and a half years ago, we had no track record for the currency, no track record for the institution. We were really starting from scratch, something which was extraordinarily ambitious. It was a tremendous challenge. You judge whether or not we were up to that challenge. Remember also the degree of scepticism that we had to accept from some observers at the time. We live fortunately in a universe of free thought and free debate in public opinion. It is a great privilege that we have. We know that we have important responsibilities and we know that with a great level of responsibility comes possible criticism, possible observations of any sort. We accept this and we have a lot of debate here, a lot of colloquiums and seminars are organised, and we fully participate in the public debate. We believe in what we do and we are observed not just by all of you, but by the entire world. As regards the present climate, I let you judge, we are not in a universe of partisan debate. We are the guardian of a currency which is a public good for 306 million persons – whatever their sensitivities. We are independent precisely because everybody knows that we guard the currency for all, absolutely all, without any exception. I think that it is clear that as far as structural reforms – reforms in general – are concerned, we all have to explain as well as possible, to convince the people of Europe that everybody would be better off with the reforms. And when I say that everybody would be better off, principally it means mass unemployment would diminish in those economies that unfortunately have mass unemployment. In the economies where structural reforms have been implemented, you do not have mass unemployment, which is a fantastic improvement. So that is the great challenge of our time, and we do not exclude ourselves from that challenge, we consider that we have a role to play. We are not lecturing anybody, we are trying to help in convincing public opinion that we would be better off with reforms. We know that it is not easy. Perhaps you could interpret what has been observed here and there as precisely part of the difficulty of this pedagogic challenge, this communication challenge which is a challenge for governments, parliaments, opinion leaders in general and also for this institution. As I said, we do not exclude ourselves from this very important and demanding challenge.

Question: Can you please comment on the statement of Irwin Stelzer of the Hudson Institute in Le Monde two days ago. He said that as long as the problems of fiscal policy and the labour market are not solved you will always have significant unemployment, weak development and growing rejection of the EU by its citizens – both referenda. The assumption is simple: as long as you have common interest rates for the whole of Europe, you will always have those problems. How would you comment on that?

Trichet: Again, I have to say very firmly that when we look at the dispersion of growth, for instance, or the dispersion of inflation in this vast continental economy which is called the euro area, with 306 million people, and we compare that with a vast continental economy which is called the United States of America, with a little less than 306 million inhabitants, there are figures which can be computed in terms of standard deviation for growth and for inflation. If you take yearly growth, you have, on the basis of 2004 figures, 1.7% for the states of the United States and1.3% for the 12 states of the euro area. The orders of magnitude are the same. Of course this has to be looked at very carefully: there is not the same number of entities in the two unions – the American union and the euro area. If I take the year-on-year standard deviation in Europe on the basis of the first quarter of 2005, I have a figure of 1.2 %, which is the lowest level since 1999. It does not at all document a difference of nature between the American union as a vast continental economy and the euro area as a vast continental economy. It shows that we are very close. As regards the evolution over time, we do not observe change in this standard deviation figure. As regards inflation, the figures are even more striking, and the number of areas is more comparable: 12 economies and nations in the euro area, 14 metropolitan statistical areas in the United States. If you compute the standard deviation as regards inflation you have 0.9% on both sides of the Atlantic. Again, I do not draw from that a definitive conclusion, but I want you to know this, to have these figures and to see the extent to which there is perhaps from time to time an over-amplification of issues. Hans Eichel said something yesterday which I very much agree with. As well as Axel Weber. The euro is a success, and some theories are absurd and do not deserve comments

Question: You make the comparison between the euro zone and the United States. There seems to be one difference, that in the United States there is much more flexibility in the labour markets and in the markets for goods. So how helpful are these comparisons in making your point? And the second question is concerning interest rate policy: last time, four weeks ago, you said: we are certainly not preparing for a rate cut. Would you repeat that statement today?

Trichet: We say very clearly that structural reform is necessary to improve the functioning of the European economy. And we are not the only institution to say that: we have the unanimity of the Council, which has been repeated in Brussels recently after Lisbon, and we have the position of the Commission. So, we could certainly improve in this respect in comparison with the United States, but it would be unfair to say that we have only defects on this side of the Atlantic and that there are only assets and qualities on the other side. You know well that on the other side of the Atlantic they have big problems too, including a lack of savings, domestic imbalances and external imbalances. If we want to be just, we must say that we all have homework to do. On the first question, if I was preparing for a rate cut, I would tell you something which would permit you to think “well, they are preparing a rate cut”. I am not telling you anything that would be interpreted as suggesting we are preparing a rate cut. I told you we think that the present rates are appropriate and fully in line with what would be best for us to be faithful to our mandate and foster growth and job creation in Europe.

Question: Mr Rato said that the ECB should consider another rate cut if the economic situation deteriorated gravely in the euro area. Do you think he is right?

Trichet: Mr Rato is the Managing Director of the IMF. You could also have quoted Mr Johnson and the chief economist of the OECD. Perhaps in this room we also have editorialists that are very keen on advising us to increase rated and even perhaps think that we should have increased rates for quite a period of time. I am not fingering out anybody. So we have received very good advice, and there is also the advice which comes from the people of Europe, which is: be faithful to your mandate. And I am not only referring to the people of the country where we stand, I am referring to all people of Europe. We take all that into account. They are all well inspired, I know that, and they are all taking account of a lot of information that is filtered by particular institutions or individuals. I do not suggest that any of these institutions or individuals do not do their job. We have also our own job. We are responsible as guardian of the currency, nobody else. We are responsible and we take fully that responsibility.

Question: Back to the credibility question. There is no doubt, you don’t need to convince us all or indeed the financial markets that the euro is a tremendous success story. But how do you explain that, for example, if you listen to recent opinion polls and they might be representative or not. Yesterday opinion polls you saw in Germany where 90% of the people asked wanted the Deutsche Mark back. Why is the success of the euro often translated so badly to the people of Europe?

Trichet: I didn’t see this poll and I am a little bit surprised by the figures you are mentioning but I accept it fully. I would only say that there is no difference between the DM and the euro as regards the credibility of the currency, as regards the solidity of the currency, as regards the capacity of the currency to inspire confidence, and this can be proved not by literature or abstract theory but by academic research, arithmetic, mathematical, economic research: Look at the yield curve, look at the inflationary expectations. This is something which is a fact and this is very important.

Question: …but it’s the marketing issue, people in the street often don’t see it that way…

Trichet: What you are saying, Madame, is what I said myself. The people in the street are calling upon us to be faithful to our mandate, to deliver a currency which would be as good as any national currency before the euro. It is what we are doing and we are succeeding, it can be proved, including in Germany, and I know the attachment of the German people to a solid currency, a currency which would inspire confidence. I say that all the people of Europe, the 306 million, are calling for a currency which would inspire confidence, preserve purchasing power, permit them to project themselves with confidence into the future and I hope very much that some of them will consume more and, again, I told them to do so: “It is time to consume, you can be sure that we will preserve your purchasing power”.

Question: Just another question on the image of the euro: perhaps the problem, if you ask people in the street, is not that they would say we don’t have enough stability or the euro is a weak currency, but they perhaps would argue growth is weak and that’s also what’s behind the article STERN published today, the impression that since we have the euro, at least in countries like Germany, growth has been deteriorating, rightly or wrongly so. What would you answer to that statement?

Trichet: Again, we are responsible according to the Treaty and they [the people] know pretty well from experience, particularly in Germany, that the central bank has the responsibility for issuing a currency, and they are asking for the currency to be credible. But we have a number of other conditions which have to be met to have growth in a satisfactory fashion. We all agree on that, but as far as we are concerned, by being faithful to our mandate, we are delivering. Observe the market risk that we have in front of us. Observe that the loans to the private sector in the euro area are growing twice as fast as the GDP in value terms. Everybody sees that we do all we can by being faithful to our mandate to have an environment which would be as favourable as possible to growth. Again, the diagnosis is that we need reform if we want to be in a better shape as regards growth and job creation. We all agree on that.

Question: We have had quite a string of questions about whether the ECB has discussed rate cuts, and we have had a number of answers. But, for the sake of balance and clarity, I was wondering if the one thing we can draw from your answers is that the ECB has certainly stopped talking about a rate rise?

Trichet: The only thing that you can draw from all that has been said in the Introductory Statement and from what I have said now is that we remain vigilant. That continued vigilance is of the essence. And everybody knows that if we had to do something to guard against inflationary risks, we would do it. We have not promised anything to anybody. And it is because we are vigilant, and everybody knows that we are vigilant, that we have this solid anchoring of low inflationary expectations that I have been talking about.